Heads Up: The Fed continues to raise rates — up 3% this year — making credit card debt even costlier.
Pay it off today with a low fixed-rate personal loan. View your rate —>

Pros & Cons of Charge Cards

February 10, 2021 · 8 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Pros & Cons of Charge Cards

They may look and sound like the same thing, but charge cards and credit cards are actually very different financial products.

Unlike credit cards, charge cards do not charge interest or allow you to carry a balance from one month to the next.

In addition, charge cards often offer uncapped spending limits and generous reward benefits to cardholders. However, they typically come with relatively high annual fees.

There are both pros and cons of using a charge card vs. a credit or debit card. Learning how each of these payment systems work will put you in a better position to know which one(s) you may want to use and when.

Recommended: Tips for Using a Credit Card Responsibly

What is a Charge Card?

A charge card is a branded payment card that can be used anywhere the brand is accepted for electronic payment.

Charge cards require a credit application for approval, and typically are only approved for borrowers with good to excellent credit.

Like a credit card, charge cards allow the cardholder to make purchases that can be paid for at a later date.

However, unlike a credit card, which allows the cardholder to carry a revolving balance by making minimum payments each month, charge card balances must be paid in full at the end of each statement cycle.

If you don’t pay the balance at that time, you may not only face hefty late fees (often considerably higher than those you’d see with a credit card).

However, this strict repayment requirement does come with some benefits.

For one thing, most charge cards don’t have a preset spending limit like credit cards do.

That doesn’t mean you can spend an unlimited amount, however. It means that the max amount you can spend changes, depending on your card usage, credit history, financial resources, and other factors.

These limitations can change frequently. You can find out what your spending limit is on the spot online, with a mobile app, or by calling the number on the back of the card.

Charge cards are also known for their generous rewards, including purchase points and/or credits for making a purchase, and sometimes offer double or triple points on dining and travel expenses.

The benefits of a charge card aren’t free, however. Although charge cards don’t charge interest on purchases, since they’re paid off in full at the end of each billing cycle, almost all charge cards do require an annual fee. These fees can range from $150 to $550.

Cash in on up to $300–and 3% cash back for 365 days.¹

Apply and get approved for the SoFi Credit Card. Then open a bank account with qualifying direct deposits. Some things are just better together.

Charge Card vs. Credit Card

Although charge cards and credit cards are similar, the differences between them can make one payment system more appealing than another, depending on your financial situation and spending habits.

Credit cards, like charge cards, allow purchases to be made today and paid for tomorrow — but in this case, “tomorrow” doesn’t necessarily have to mean the end of the billing cycle.

Credit cardholders are able to carry a balance from month to month, sometimes called a revolving balance, which allows the flexibility to pay when you’re able.

However, it’s important to note that credit card companies charge interest on these revolving balances — and the compound nature of that interest means that interest can also be assessed on the interest itself over time.

That’s one reason it’s so easy for credit card debt to spiral–and one reason being forced to pay the bill in full each month, as charge cardholders are, can be an attractive option for those working on their financial self-discipline.

That said, those who have the discipline to pay their credit card bill in full each month can avoid paying interest entirely, since credit card companies only charge interest on revolving balances.

If your credit card doesn’t assess an annual membership or maintenance fee, that means you can use the card to your heart’s delight and never pay a dime more than you spent on your purchases, provided you’re diligent about paying the statement off in full each and every time.

Both credit cards and charge cards often offer additional bonuses and benefits, such as cash-back rewards, points you can use towards purchases, concierge services, and statement credits.

The value of these kinds of rewards often scales with the annual membership fee in both credit and charge cards, so you’ll want to always be sure to read the fine print before signing any paperwork.

Recommended: When Are Credit Card Payments Due

Charge Card vs. Debit Card

Since a charge card isn’t an extension of long-term credit in the same way a credit card is, it might be tempting to compare it to a debit card. But there are significant differences between these two types of electronic payment systems too.

A debit card, unlike either a charge card or a credit card, is linked to a spending account with real money in it.

Therefore, in most cases, the cardholder can’t spend more than the amount they’ve put into that account. If they do, they may face pricey overdraft fees and have the difference taken out of the next deposit they make.

Debit cards, however, generally don’t involve interest charges or annual fees. They’re simply a shortcut for taking money out of a spending account.

Debit cards are also used to withdraw money from the ATM and can be used at certain point-of-sale terminals to get cash back when the cardholder needs actual dollars in hand.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Pros and Cons of Charge Cards

Charge cards, like any other financial product, have both benefits and drawbacks.

While some consumers may enjoy having and using a charge card, others may feel the annual fee is not worth the benefits.

Pros of Charge Cards

•  Because they have to be paid in full each month, charge cards can help avoid a credit card debt spiral.
•  Charge cards have no preset spending cap, which may allow cardholders to make large purchases without having to worry about “maxing out” the card.
•  Charge cards don’t require paying interest (though high fees can be assessed for late payments).
•  Charge cards often offer generous rewards and benefits, such as purchase points, statement credits, and sometimes double or triple points on dining and travel (which can make them a good option for business travelers).

Cons of Charge Cards

•  Many charge cards carry high annual fees, while many fee-free credit and debit cards are available.
•  Charge cards are offered by a limited number of issuers, so there are typically far fewer to choose from than credit cards.
•  As with credit cards, late payments can ding your credit history. With charge cards, however, consistently late payments can be more detrimental to your credit than late credit card payments.
•  You have to pay the whole balance to avoid a late fee (with a credit card, you can typically pay the minimum payment to avoid the late fee).

Alternatives to Using Charge or Credit Cards

The buy-now-pay-later model of purchasing has its advantages, since you can have something in hand before you actually have the funds to cover the cost.

But if you’d rather avoid hefty annual fees and/or paying interest, another way to afford a significant purchase is to start saving ahead of time. You may also want to consider setting up a separate savings account earmarked for that particular savings goal.

For something major you’d like to buy within a couple of years, consider opening an account that offers higher interest than a traditional bank account, but will allow you to access your money when you need it. Good options include an online savings account, money market account, or a checking and savings account.

To make sure you stay on track with your savings goal, you may also want to set up automatic payments between your spending account and your savings account. For example, you could select a dollar amount (and it’s fine to start small) to be sent each month after your paycheck gets deposited.

The Takeaway

A charge card is a financial product that, like a credit card, allows the cardholder to make purchases now that they then pay for later.

However, unlike credit cards, charge cards don’t allow cardholders to carry a revolving monthly balance — all charges must be paid in full at the end of the billing cycle.

Charge cards also don’t carry preset spending caps (though there may still be some spending limits), and typically assess annual membership fees.

If you enjoy perks, travel frequently, and make the occasional high-ticket purchase, a charge card might be a good fit for you.

If you’d rather avoid annual fees and/or paying interest, you may want to simply save up for that next big purchase.

One way to make saving for a short-term goal a little easier is to sign up for a SoFi checking and savings account.

SoFi Checking and Savings allows you to spend and save–all in one account. And you’ll pay zero account fees to do it.

Using SoFi Checking and Savings’s Vaults feature, you can separate your spending from your savings while still earning a competitive interest rate on all your money.

Vaults also allows you to track your savings progress and set up recurring monthly deposits (which could help you afford that purchase sooner).

See how SoFi Checking and Savings can help you manage your money and meet your savings goals today!

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
1See Rewards Details at SoFi.com/card/rewards.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet


All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender